September 9, 2019 / 2:01 PM / 3 months ago

FOREX-Euro gains on hopes of German fiscal stimulus

    * Report that Germany may circumvent debt rules to boost
    * ECB expected to ease at Thursday's meeting

 (New throughout, updates trading and comments to U.S. market
open, new byline, changes dateline, previous LONDON)
    By Karen Brettell
    NEW YORK, Sept 9 (Reuters) - The euro rose on Monday after a
report that Germany may boost fiscal stimulus increased hopes
that governments will act to boost growth in the region, though
expectations of further central bank easing kept a lid on gains.
    Germany is considering the creation of a "shadow budget"
that would enable Berlin to boost public investment beyond the
restrictions of constitutionally enshrined debt rules, three
people familiar with the internal discussions told Reuters.

    Government officials are flirting with the idea of setting
up independent public entities that would seize the historic
opportunity of zero borrowing costs and take on new debt to
increase investment in infrastructure and climate protection,
the officials said.
    “A key part of that coalition is the commitment to keep
balanced budgets. If they are waiving from that it could be very
supportive for the euro and very bearish for the dollar,” said
Bipan Rai, North American head, FX strategy at CIBC Capital
Markets in Toronto.
    The euro gained to $1.1047 against the greenback, up
0.18% on the day, after earlier trading as low as $1.1014.
    Euro gains were capped, however, before the European Central
Bank’s meeting on Thursday, when the central bank is expected to
introduce a new wave of monetary stimulus.
    "The default is to be negative euro into ECB," said Kenneth
Broux, head of corporate research at Societe Generale.
    "Resuming bond purchases won't do anything" to the euro zone
economy because "the monetary policy in Europe has stopped being
effective," Broux added. "The ECB has done all it can."
    The euro may get a boost, however, if the ECB disappoints
dovish expectations already baked into the market.
    “We get the sense the market is expecting a bit too much of
a dovish outcome this week and if that is the case that could
imply that tactical long euro positions might do well,” Rai
    In the U.S., consumer price inflation data on Thursday and
retail sales data on Friday are the main economic focus. They
will come after the jobs report on Friday showed that U.S. jobs
growth slowed more than expected in August.
    The Federal Reserve will continue to act "as appropriate" to
sustain the U.S. economic expansion, Fed Chair Jerome Powell
said Friday in Zurich, bolstering expectations for a rate cut at
the Fed's meeting on Sept. 18.
    Currency bid prices at 9:26AM (1326 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change                 
 Euro/Dollar      EUR=        $1.1047        $1.1027     +0.18%         -3.68%      +1.1058     +1.1016
 Dollar/Yen       JPY=        107.0400       106.9000    +0.13%         -2.92%      +107.0700   +106.7800
 Euro/Yen         EURJPY=     118.27         117.86      +0.35%         -6.30%      +118.3000   +117.7500
 Dollar/Swiss     CHF=        0.9910         0.9872      +0.38%         +0.98%      +0.9914     +0.9875
 Sterling/Dollar  GBP=        1.2361         1.2281      +0.65%         -3.10%      +1.2382     +1.2235
 Dollar/Canadian  CAD=        1.3153         1.3170      -0.13%         -3.55%      +1.3184     +1.3150
 Australian/Doll  AUD=        0.6866         0.6846      +0.29%         -2.60%      +0.6872     +0.6837
 Euro/Swiss       EURCHF=     1.0951         1.0888      +0.58%         -2.69%      +1.0952     +1.0890
 Euro/Sterling    EURGBP=     0.8935         0.8973      -0.42%         -0.55%      +0.9014     +0.8905
 NZ               NZD=        0.6437         0.6425      +0.19%         -4.17%      +0.6444     +0.6414
 Dollar/Norway    NOK=        8.9268         8.9740      -0.53%         +3.34%      +8.9922     +8.9264
 Euro/Norway      EURNOK=     9.8625         9.8975      -0.35%         -0.44%      +9.9085     +9.8513
 Dollar/Sweden    SEK=        9.6513         9.6427      +0.25%         +7.67%      +9.6695     +9.6333
 Euro/Sweden      EURSEK=     10.6630        10.6362     +0.25%         +3.90%      +10.6655    +10.6241
 (Additional reporting by Olga Cotaga in London
Editing by Chizu Nomiyama)
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